Fall Letter To Clients: Conclusion

This post marks the end of our most recent letter to clients.

What the Playbook says:

The playbook is our situational analysis based on historical market results. We study money flows along with the disciplines of fundamental and valuation analysis to see how markets have responded to similar historical events. The playbook gives us different scenarios regarding current market activity. We use it to then formulate our game plan. The game plan is a tactical and strategic allocation of assets based on what the playbook tells us has historically occurred. It is further refined to the specific risk/reward parameters of our various client groups and strategies. You can find more information about this here: http://lumencapital.blogspot.com/2010/02/definitions-part-ii-playbook-game-plan.html

Subject to client’s individual risk/reward parameters and our investment strategies, the playbook has kept us close to fully invested in the equity portion of our accounts for most of the summer. Recently given the rally that we’ve seen this fall and also owing to the overbought nature of most stocks or indices, we have taken small sales and raised our cash positions. You can see some of our reasoning for doing that here: http://lumencapital.blogspot.com/2010/10/tsionna-102010.html . We have also identified levels where our indicators would suggest to be more aggressive sellers should the market experience a more significant correction that we currently think is likely. As usual our preferred way to invest in equities is with ETFs. Areas of concentration include Technology, Financials, and dividend related securities. We have also added to or initiated foreign exposure in our appropriate investment strategies.

Stocks have for the most part recently stalled their advance. We think there are a few reasons for this. The market is very overbought by almost any criteria we use to measure it. The 2nd reason we believe is that the market is approaching a significant level of resistance around 1220 on the S&P 500. This marks two events. The first marks the highs that stocks reached in the spring and it also marks the area from which stocks crashed in 2008. {See the chart below} It would not surprise us if stocks use this level as an excuse to at least pause and work off this overbought condition. Markets work off being overbought by either a correction of time {churning around and going nowhere}, by price {a decline} or a bit of both. Probability suggests such a pause could occur here, potentially setting the stage for higher prices into year’s end. We will be guided in this regard by our indicators.

Thank you as always for your continued trust and support.

Christopher R. English is the President and founder of Lumen Capital Management, LLC.-a Registered Investment Advisor regulated by the State of Illinois. A copy of our ADV Part II is available upon request. We manage portfolios for private investors and also manage a private investment partnership. The information derived in these reports is taken from sources deemed reliable but cannot be guaranteed. Mr. English may, from time to time, write about stocks in which he has an investment. In such cases appropriate discloser is made. Lumen Capital Management, LLC provides investment advice or recommendations only for its clientele. As such the information contained herein is designed solely for the clients or contacts of Lumen Capital Management, LLC and is not meant to be considered general investment advice. Mr. English may be reached at Lumencapital@hotmail.com.

*Long ETFs related to the S&P 500 at the time of this writing.